We recommend that every quarter you pick one thing to improve about your sales process. If you improve the conversion rate during each key moment in your sales process by just a small percentage, you can end up doubling your revenue or more.
But how do you know what key moments or metrics to focus on? In the past, we’ve discussed three key measurements:
- Volume based metrics (the change in amount at any given stage i.e. # of leads)
- Conversion rates (output / input i.e. MQL rate)
- Sales cycle times (measure of time for state i.e. # of days from opp creation to close)
But how do you determine which moment and which metric to drive this quarter?
There are three lenses to look through:
- Are any of my metrics off in comparison to the benchmark?
- Have any of my metrics changed over time? Any significant dips or spikes that require attention? Are these dips unusual or regular seasonality?
- Are there any noticeable differences from rep to rep? Other comparisons such as region-to-region, product-to-product, or customer segment-to-customer segment are relevant too.
Let’s look at an example of how benchmarks might help you diagnose issues:
Notice how in this scenario, the MQL to SQL conversion rate is much higher than the industry benchmark and that the SAL to Commit conversion rate (or win rate) is much lower than industry average.
Does this mean that marketing is doing an awesome job delivering quality leads and that sales is not good at closing?
Perhaps it’s a definition issue? Notice that if you multiply the numbers, the MQL to Commit ratio for this company is actually right on track — even slightly better than industry comparables:
Example: 45% * 95% * 17% = 7.3%
Benchmark: 25% * 95% * 30% = 7.1%
It could therefore be that this company simply has loose MQL qualification criteria. Is this a problem? That depends. There are many good reasons why you might want to loosen MQL criteria, including:
- You are in a new market and need to do a lot of education
- You have a very green sales development team
- Your field sales team is not very busy
In all these cases, it may very well be appropriate that you set up more, but less qualified, meetings for your field sales team. This will give the field sales team an opportunity to educate your market about your category or solution and it will avoid that the sales development team dismisses opportunities too easily.
These type of results however could be problematic if any of these are true:
- You don’t have a common definition for what a good MQL looks like
- Your field sales team is busy and doesn’t have enough time to focus on the real/best opportunities
- Your average ACV/MRR is not where you need it to be or it is declining
Will this company meet their numbers? If not, what could they do to improve?
In this example, you can see this company has an average deal size of $20,000, is closing 1 in 4 deals, and converts 85% of SQL’s to opportunities and 25% of MQL’s to SQL’s. Overall these are not terrible metrics, but this company has a big problem.
The math of these metrics:
1000 x 25% x 85% x 25% x $20,000 = $1.062M
With the current metrics this company is going to achieve only 35% of goal. So what can we do?
- Loosen the SAL criteria to give the sales reps a few more deals to work
- Work with the sales team to improve close rate
- Train our teams to negotiate better to keep deal value higher
Lets walk through and see which has the biggest influence.
More Opps: 1000 x 25% x 90% x 25% x $20,000 = $1.125M (just shy of 6% growth)
Better Close: 1000 x 25% x 85% x 30% x $20,000 = $1.275 (20% growth)
Bigger Deal Size: 1000 x 25% x 85% x 25% x $24,000 = $1,275M (20% growth)
The challenge with these is of course these are big improvements which will take time and if you are running at 35% attainment, you need to make immediate impact. Let’s see if we were to look at improving all three, but at only 10% improvement.
Process Improvement: 1000 x 25% x 89.25% x 26.25% x $22,000 = $1.288 (21.2% increase)
Here is a sample action plan to make this happen:
- Loosed SAL acceptance criteria just slight to increase the opportunity volume
- Focus reps on finding true pain and impact and anchor demo and proposal to it
- Teach reps to trade instead of negotiate to keep ACV higher
What is going on with this company? What is their achilles heel?
What do you see in this data? First thing you might notice is that close rate is high at 40% and most of us would be very happy with that closing percentage. But if you look further down the customer journey, you see only a 70% retention rate which we can all agree is not good. SaaS benchmark should hover around 95%, not including upsell/cross-sell which should bring it up over 100%.
So what does this mean?
You might have an early stage product that might not be performing as expected. It could be that the sales team is over-selling, or possibly a mix of both. From looking at the data, you can form a hypothesis about what might be going on, why you are seeing a dip or gap, but you can’t actually formulate a solution and know for sure. Next, you need to perform root-cause analysis and only then can you prescribe a solution or action plan.
After you identify a gap, as the Japanese refer to in six sigma/lean manufacturing, next you would “go to the gemba,” which means “workplace” in Japanese. It means to observe the workers and see if you can find reasons for the delay or gap in the process. For example, you could observe why the front right wheel on the Prius assembly station takes longer than usual (longer than benchmarks from the Corolla and other Toyota cars) to be assembled. Perhaps the worker is wearing different gloves or no gloves at all that make the bolts and tools slip in their hands and the solution is to give all workers the optimal gloves.
What is the equivalent in sales?
The equivalent to “observing the workers” is to go listen to actual sales calls. If you haven’t listened to the recording of at least three calls in the past week, then stop reading this blog now and go do that. You’ll be amazed what you’ll learn. Perhaps your team is talking too much and not asking enough questions. Perhaps the questions they are asking are not well researched and irritating the prospect. Perhaps your team could do better on telling customer stories.
Want to learn more?
Winning by Design and InsightSquared are offering a joint assessment service that use the InsightSquared dashboards combined with the operational expertise of Winning by Design’s former VPs of Sales, CROs, and CEOs, management interviews and call reviews, to help you define what are your best growth opportunities for the next 100 days and one year. Contact us here for more information.